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Credit Managers’ Index for September Drops Slightly, Maintains August Momentum

October 01, 2012, 07:00 AM
Filed Under: Economy

The National Association of Credit Management said the Credit Managers’ Index showed a nice recovery in August when the combined index number moved from 53.4 to 55.8, showing better overall performance than earlier in the year. The 55.8 was higher than anything seen in the last year (except for the February number, which matched it). The sense was that some key areas were showing improvement.

The September number is nearly the same as in August: 55.3. The combined index number is at or above the level reached only three times this year. In short, the bounce first registered in August appears to be more secure than originally assumed. Slight shifts in some categories (factors) have implications for the next few months, but it can be asserted at this stage that the momentum from late summer is carrying forward to some extent into the fall.

There was a slight decline in the favorable factor index due mostly to a reversal of the sales number, which slipped from 62 to 59.5. This marked the second lowest point reached in sales in over a year after July’s 58.5. The rebound in August was expected to continue into September, but that was not the case. This may be the most worrisome of the figures. Without some expansion in sales, the other categories may start to slump as well. Sales is well above the contraction level, but everyone would be more comfortable if it was back in that 60 range. There was also a decline from 59.7 to 58.5 in dollar collections. This category bounces fairly consistently between 58 and 62, but is trending on the low side of that range.

Other favorable factors have been more cooperative. New credit applications showed another gain, moving from 56.8 to 57.4. Granted, most of the year saw numbers at least this high and higher, but at least the trending is in the right direction. Better news came from amount of credit extended, with an improvement from 61.4 to 62.3. There may be fewer credit applications being accepted, but those that have been approved appear to be getting higher dollar amounts. That is essentially good news, and though this number was higher in past months, as long as it remains over 50 there is reason for optimism.

There was more variety and some drama in the unfavorable categories. The unfavorable factor index sank from 53.1 to 52.6, making it largely responsible for the decline in the combined index. The shift was not all that drastic and a far cry from the sub-50 readings from just a month ago, but expectations were that the numbers would improve.

The good news is that all the categories remain above 50; the bad news is that some of them took a dip and are a lot closer to contraction territory than many observers feel comfortable with.

The largest drop was in disputes (51.9 to 50.5), followed by rejections of credit applications (52.4 to 51.4). The deterioration in rejections of credit applications, which fell from 52.4 to 51.4, is somewhat troubling, and partially
offset the gain in new credit applications. This is not a huge shift, but demonstrates that too many of those seeking additional credit are not prepared and are unlikely to get what they are asking. There were lesser declines in dollar amount of customer deductions (51.4 to 51.0) and bankruptcies (59.6 to 59.1). Among the numbers that improved, as expected, was most notably dollars beyond terms, which improved from 50.9 to 51. In general terms, September showed only modest movement up or down, and in the face of all the other negative data on the economy that is nothing to be dismissed as insignificant.

NACM, headquartered in Columbia, Maryland, supports more than 15,000 business credit and financial professionals worldwide with premier industry services, tools and information. NACM and its network of affiliated associations are the leading resource for credit and financial management information, education, products and services designed to improve the management of business credit and accounts receivable. NACM’s collective voice has influenced federal legislative policy results concerning commercial business and trade credit to our nation’s policy makers for more than 100 years, and continues to play an active part in legislative issues pertaining to business credit and corporate bankruptcy. Its annual Credit Congress is the largest gathering of credit professionals in the world.

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